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4 Ways India’s Government Can Improve its GDP Per Capita

4 Ways India’s Government Can Improve its EconomyRecently, Bangladesh, once considered one of the world’s poorest countries, has surpassed India in GDP per capita. This news has caused outrage among Indian citizens, but the government will not be able to mimic Bangladesh in creating a more prominent low-wage manufacturing export sector. Instead, India needs reforms that will create higher incomes for everyday workers, who are the backbone and foundation of the country’s economy.

GDP per capita measures the average income earned per person in a country during a given year. In 2019, India’s GDP per capita was $2,104. However, in 2020, this figure dropped to $1,876, placing the country one spot below Bangladesh, which currently has a GDP per capita of $1,887. Unlike India, Bangladesh has experienced consistent economic growth over the past three years.

Indian citizens are demanding that Narendra Modi, the country’s prime minister, enact reforms and policies that will boost GDP per capita by improving wages for India’s working class. Here are four ways that India could potentially boost its GDP per capita.

4 Ways India’s Government Can Improve GDP

  1. Increasing income for farmers. In India, 40% of the population works in agriculture and small-scale farming supports many poverty-level communities. However, the Indian government has historically kept prices for agricultural products low in favor of the consumer, despite the lower profits for farmers. The recently introduced 2020 Farm Acts will allow farmers to sell their products to the highest bidder, allowing them to seek higher incomes. When farmers are prospering, they support other sectors of India’s economy through their own consumption. Products like fertilizer, working attire and tools are necessary for farmers, especially as they expand their business. This increase in expenditure directly creates jobs for others.
  1. Through government expenditure and investment in infrastructure. The government controls the amount the nation spends on public matters each year. However, government spending is necessary to increase the overall GDP per capita. This year, incomes have declined for Indian citizens, meaning private consumption has also decreased. By spending money on building and repairing roads and bridges, the government will provide citizens with greater ease and efficiency in their work and create jobs in construction. Furthermore, by using more funds to pay higher salaries, private consumption will once again increase, promoting higher business investment and improving the market for imports and exports. By spending a certain amount of money, the government would benefit from the economic boost created as a result.
  1. Urbanizing India’s rural populations. Urbanization drives economic growth, and because India’s farming population is so prominent, moving some of these farmers to cities would allow them to get jobs in manufacturing. Not only would this increase agricultural productivity by decreasing the number of farmers using the same amount of land, but it would help grow some of India’s medium-sized cities into more prominent urban landscapes. The government can promote migration to city areas by providing incentives to rural populations, including investing in better infrastructure and urban services, such as transportation and water management. In addition, new urban populations would create a resurgence of the housing market and give banks more lending opportunities. Inevitably, more development and urbanization would create new opportunities for international investments and manufacturing exports.
  1. Becoming competitive in high-potential sectors. India has the opportunity to create as much as $1 trillion in economic value by establishing itself as a competitive manufacturer of electronics, chemicals, textiles, auto goods and pharmaceuticals. These sectors accounted for 56% of global trade in 2018, while India only contributed to 1.5% of global exports in these areas. Greater urbanization and an increase in the manufacturing labor force would allow India’s government to make this a reality. Currently, the country’s imports constitute a greater percentage of global trade than its exports. By increasing competitiveness in these sectors, India would not only increase its potential for exports but also decrease its reliance on imports, curbing the amount of money spent by citizens on foreign products.

While the path to economic recovery is not always as straightforward as it seems, India’s government has several means through which it can improve incomes for everyday workers. The government not only has an incentive but an obligation to create a better quality of life for its working class, which is the foundation of India’s economy. Improving India’s GDP per capita would directly benefit the nation and its citizens. Greater opportunities for manufacturing exports, foreign investments and urbanization are all benefits the country would reap from its own investment in its working class.

– Natasha Cornelissen
Photo: Flickr

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Understanding Income Inequality in the Middle East

Income Inequality in the Middle East
Since 1980, the high growth rates in Asia, particularly in China and India, have led to a significant increase in income for the bottom 50 percent of the global population. While this signifies growth and a reduction of poverty levels, it does not signify a decrease in global inequality or in the income inequality in the Middle East.

Income Inequality in the Middle East

There are two types of income inequality: between-country income inequality and within-country inequality. Although the high growth rates of India and China have led to a decrease in between-country average inequality, within-country inequality has only increased. Simply stated, a look into individual countries will show that the rich are getting richer while the poor are getting poorer.

The World Inequality Lab, composed of over 100 researchers and economists, recently published the “World Inequality Report 2018.” The report underscores that collecting macro and microeconomic data on inequality is difficult, especially since many countries do not release or even produce income and inequality data and statistics.

Despite these limitations, the researcher and scientists found a new methodology to source the necessary data. One of the key findings of the report was that income inequality in the Middle East is the highest, while the lowest in Europe. In the Middle East, the top 10 percent take 61 percent of national income.

Causes of the Fiscal Inequalities

Income inequality in the Middle East is a result of multiple factors. On one hand, the disparate urban-rural income gap plays a large role in skewed income distribution, especially in countries like Egypt, Yemen and Tunisia. Because rural communities are further away from commercial ports and main markets, they have less access to imported commodities, such as rice and wheat.

This limited access to basic needs increases malnutrition and poverty rates in these countries, thereby furthering the economic divide. This economic inequality has played a role in the Arab Spring uprisings and demonstrations, polarizing these countries not just economically, but also politically.

The World Inequality Report predicts that if countries continue to operate “business as usual,” then global, within-country inequality will only increase. However, the report suggests that if countries follow the trajectory of Europe over the past decades, then global income inequality can be reduced.

Attainable Solutions

The United Nations Economic and Social Commission for Western Asia advocates for the following proven tools to combat income inequality in the Middle East:

  • Tax progressivity
  • Increased equal access to education
  • Increased fiscal transparency
  • Investment in reducing public debt

The World Inequality Lab has already made attempts to increase fiscal transparency, using national income, wealth accounts, household income and wealth surveys, tax income and inheritance data to estimate figure on inequality and wealth in the Middle East.

International Support

Additionally, UNICEF is working to strengthen the education systems in the Middle East by working closely with both federal and local governments. The Life Skills and Citizenship Education Initiative under UNICEF aims to integrate core life skills, such as critical thinking and problem-solving, into the current education systems.

And finally, having a sense of awareness about global income inequality can also play a role in combating income inequality. Simply knowing that within-country income inequality is increasing despite the reduction in global inequality is important in addressing the issue.

– Shefali Kumar
Photo: Flickr

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Overcoming Income Disparity Critical to Combat Poverty

Overcoming income disparity

Equitable growth is seldom easy to achieve. Despite rising levels of GDP, the proliferating rates of income disparity in many countries may impediment the fight against global poverty. The “Trickle Down Effect” is often the culmination of an economic boom, where regardless of rising incomes and prices, the gap between the rich and the poor does not waver. Thus, the disparity increases the Gini Coefficient which is a vital economic indicator that countries use.

A recent analysis conducted by the Overseas Development Institute explains how poverty, growth and disparity are co-mingling factors. Countries like Slovenia and Denmark have a coefficient of under 25, while large economies such as China have Gini values of 46.9.

Moreover, the poverty rates in countries with lower disparities such as Denmark stand at only 3.4 percent living under less than 50 percent median income. In contrast, India with a disparity value of 33.6 has a concurrent poverty rate of 23.6 percent according to the World Bank.

The striking variation between these countries can be attributed to the distinct fiscal and monetary policies that are followed by governments.

Overcoming income disparity is critical when it comes to to the world’s poor, especially during rapid periods of growth. With rising prices and limited credit amounts, many cannot afford necessities to help support their families. Bangladesh, Cote d’Ivorie and many parts of Sub Saharan Arica have suffered as a result. Social and labor immobility becomes prevalent.

Additionally, the different levels of education have aggravated this issue along with the division between the rural and urban sectors. The poor find it difficult to seek jobs owing to the fact that they only have a basic education. Therefore the rich find it easier to seek jobs and are paid more as they possess more skills. The labor market unfortunately runs on this principle.

While coping with income disparity and economic uncertainty, China had introduced the 12th Five- year Plan for Poverty Reduction Village by Village in rural areas along with various supply side policies. The provision of 21 billion yuan was successful. Per-capita net income of rural residents rose to 9.2 percent. Equal rights to employment was seen when 13.12 million urban jobs were created to overcome the critical situation.

Additionally, the Council for Advancement of People’s Action and Rural Technology (CAPART) in India has tried to maintain the urban-rural gap. Per-capita income has increased and is said to have overtaken Pakistan, based on a recent report by the World Bank.

Overcoming income disparity is critical to combatting global poverty. The introduction of progressive taxation would slacken the burden on lower income groups.

Bridging the gap by investing more in education is imperative so that all socioeconomic groups benefit and are equally equipped while seeking jobs.

Entrepreneurship should be encouraged to make the poor more economically self-sufficient. The World Toilet Organization has spearheaded the creation of Sanishops to train local entrepreneurs in parts of Africa. Providing subsides and capital ventures to start-ups will also increase incentives to work, amid the droughts, disparities and skirmishes in South Africa.

Over the years, a number of grassroots organizations such as Other 98 percent, US UNCUT and Mind the Gap have drawn national and international focus towards the issue of overcoming income disparity. Despite being part of thriving economies, many undermine the presence of poverty that continues to exist.

– Shivani Ekkanath

Photo: Flickr

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Income Disparity Continues to Plague South Africa

Income Disparity in South Africa
The country of South Africa is divided among those with nothing and those with seemingly everything, making for extremely high rates of poverty for the country overall. The income disparity in South Africa has had an impact not only on the domestic economy and security, but also on the global economy.

Reports show that approximately four percent of households in the country of South Africa make up 32 percent of the country’s household incomes. At the same time, about 10 percent of the citizens live in what are considered extreme poverty conditions, meaning families are living on under $1.25 a day. This disparity has not only drawn attention to the state of the economy, but it has also put a significant strain on the social aspects of the country as a whole.

Though South Africa stands as the second largest economy in Africa, economic disparity amidst the population has created more social tensions and controversy than the numbers would anticipate. Research shows that rates of disparity between members of the 90th percentile and 50th percentile citizens, in terms of income and economic security, have been continuing to grow in recent years. This means that the likelihood of social mobility, say from working class to middle class, or any further for that means, are rather difficult, and nearly impossible.

Despite becoming a democracy, South Africa continues to suffer with inequality between its citizens. This has proven to be an issue regarding security, as the growing size of the lower class and number of impoverished people compares to that of the other four percent. Lack of education can be a great contributing factor to this, as the number of unskilled and uneducated workers heavily outweighs the number of skilled workers in the country. Lack of skill and education leads to less opportunity for the average South African worker. Thus, educating and teaching more skill sets to the people of South Africa may, in part, begin to decrease the growing gap that continues to drive the people of the country apart.

– Alexandrea Jacinto

Sources: CNBC Africa, World Policy
Photo: Daily Maverick

Poverty in Mexico Violates the Country’s Own Constitution

poverty_in_mexico

Mexico’s rising poverty levels, which have been a growing crisis for years now, just reached a new benchmark—they violate Mexico’s constitution.

According to Mexico’s constitution, the minimum salary must guarantee citizens a “decent standard of living.” While individual Mexican employees chalked up 2,327 work-hours on average in 2014, workers only earned an average annual salary of $12,850.

In comparison, American workers logged around 1,800 hours in 2014 and earned an average annual salary of $57,139 in the same time frame.

“In Mexico poverty affects those who work. It’s not just the unemployed that fall into poverty, as happens in developed countries,” Mexican nongovernment organization Acción Cuidadana Frente a la Pobreza (Citizen Action Against Poverty) said in a statement. “In our country, income from labor is insufficient to be above the poverty line.”

Poverty in Mexico is increasing at such a rapid rate due to the increasing income disparity between the country’s upper and lower classes. According to the Organization for Economic Cooperation and Development (OECD), Mexico’s wealthiest 10% earn 30.5 times more than the country’s poorest 10%.

Those outside of Mexico’s wealthiest are finding it incredibly difficult to live off of the country’s present minimum wage regulations, which vary geographically. The highest in the country is 70.1 pesos a day, or around $4.30.

“These numbers are the result of a perfect storm of events,” Inter-American Development Bank economist David Kaplan told The Wall Street Journal. “This tendency regarding wages–adjusted for inflation and adjusted for the basic food basket–is part of a long-term trend that began with the crisis.”

Conveal, a Mexican social policy tracking organization, reported that the overall poverty rate in Mexico rose to 46.2% in 2014, or roughly 55 million people. This number is up from 45.5% in 2012.

Despite efforts to combat rising poverty in Mexico, the lack of a substantial living wage is making progress almost impossible. Still, Mexico’s Social Development Ministry is acknowledging the crisis.

“Multidimensional poverty is fought with greater economic growth, job creation, democratization of productivity and better distribution of income,” the ministry said.

– Alexander Jones

Sources: El Daily Post, Harrup, Webber, Woody
Photo: Flickr

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Federal Poverty Level: Its Affects on the Economy

Federal Poverty Level
The federal poverty level is a measure that is often cited yet seldom is it fully understood.  Currently, the federal poverty level is considered to be at about a $15,000 yearly income per two-person families and, of which, the extreme poverty threshold  is set to households that are living on less than $2 per day.  This definition is fairly controversial, and has been subject to change over the years based on a number of factors.  However, it is a key concept to understand, and not just for domestic policy but foreign affairs as well.

The federal poverty level, or threshold, has been in effect in its current state since the Kennedy Administration.  According to a paper by economist, Gordon M. Fisher, the level was initiated in order to understand the risks of living in poverty  and the affects of poverty on different groups of people.  During the Johnson Administration, the level was used as a target; particularly, during the administration’s War on Poverty.

The level was developed based on the cost of food for families at the time and what kind of nutritional diet a family would be able to have at different levels.  Under the first calculation of this threshold, done by an economist working for the Social Security Administration, the threshold was determined at $1,988 yearly income per two-person households.

Since its creation, while a number of revisions have occurred since the first set of calculations, the formula to determine the level has been an important factor in U.S. policy decisions.  When looking at global poverty, the extreme poverty measure is particularly important for the threshold has been used to set goals for anti-poverty measures.

The Millennium Project is one such measure that uses the federal poverty level calculations to influence foreign policy.  The project has a number of goals to keep the global economy move forward, but listed first on these goals is the effort to “eradicate extreme hunger and poverty.”  These goals were set in 1990 with initial targets set to hit these goals.

The initial target for the extreme poverty goal was to halve extreme poverty by 2015.  Reminiscent of Johnson’s War on Poverty, this goal looked to drive the force for a greater world society.  The goal actually was estimated to have been reached by 2008, an achievement that was praised as a major success for the Millennium Project.

Despite the fact that poverty levels are used by programs like the War on Poverty and the Millennium Project, the poverty threshold has a number of critics.  Popular criticisms are that the threshold is too low, as it still uses calculations from the 1960s, and are applied indiscriminately to very different regions.  Alternative poverty measures have been proposed by state governments and by groups such as the National Academy of Sciences.  Unfortunately, none have yet been adopted.

Federal poverty levels are important to understand considering they are most often used in discussions surrounding poverty.  The measures influence policy decisions and are used to track the path of the U.S. economy.  The indications are that extreme poverty is going down across the world, but what this says about actual poverty and what it says about the way it is measured could be debated in some corners.

– Eric Gustafsson

Sources: The New Yorker, Huffington Post, UN Millennium Project, Social Security Administration, Center for American Progress

Poverty in Namibia

Poverty in Namibia

Located on the southernmost part of Africa’s western coast, Namibia is not recognized by most Americans.  Namibia invests heavily in its people’s education and health, possesses a free press, competitive business markets and one of the lowest rates of corruption in Africa.

However, it is marked by an extremely large economic divide among its citizenry.  Although it is technically a middle-income country, there is much poverty in Namibia as a result of income inequalities.  The UNDP rates the income disparity in Namibia as the highest in the world, at 70.7 on a scale of 0 to 100. The top 5 percent of Namibians control 70 percent of the country’s GDP, while the poorest half of the population controls only 3 percent of GDP.  Poverty is most prevalent in rural areas of the country and among women, as is often the case.  Women head around 40 percent of households in Namibia, and these households are the poorest in the country.  Half of the country’s population lives below the poverty line.

The government’s poor land redistribution contributes significantly to Namibian poverty.  During the era in which Namibia was ruled by the apartheid regime in South Africa, large white-owned commercial farms dominated agriculture with cattle production.  The Namibian government has now divided these farms up and given the portions to natives in Namibia, still committing them to cattle production.  Essentially, the government has reproduced the apartheid era farms, but in a weakened form, as they are smaller and no longer subsidized by the South African government.  Experts suggest that a shift towards tropical agriculture and crop cultivation rather than cattle production is the solution to these land distribution issues.

Namibia also faces a severe HIV/AIDS epidemic, in which 19.7 percent of the country is afflicted.  As a result, life expectancy in the country has declined from 61 to 49 years.  Promoting economic growth in the country is difficult due to an under-educated and low-skilled workforce.  The economy is subsisted largely on the export of primary resources for little profit.

USAID uses its “ABCDE’s of development” to combat poverty in Namibia:  AIDS and TB prevention, care, and treatment, basic education, community-based natural resource management, democracy and governance, employment creation/enterprise development.  Through PEPFAR, the US has given $42.8 million in funds for disease management and prevention.  USAID has also provided training to 4,000 teachers in Namibia in the hope of developing human capital to form a more skilled workforce.  USAID also promotes community-based democratic programs to help strengthen the country’s democracy and governance.

Namibia, rich in natural resources such as diamonds, uranium, lead, gold, copper, zinc, bountiful fisheries, natural gas, and some of the most spectacular and varied scenery and wildlife in the world, could greatly benefit the world’s economy. It also benefits from an extremely developed infrastructure and a politically stable government.  If the country can overcome its disease issues, poor land redistribution and income inequalities, it will be an asset to the global economy.

–  Martin Drake

Source: World Bank, USAID, IRIN News
Photo: Steps For Children

Record High DOW Highlights Income Disparity

Record High DOW Highlights Income Disparity

On Tuesday, the DOW-Jones closed at a record high of 14,164.53. This broke the previously-set 2007 record and is being seen by many as a sign of American resurgence and recovery from the fiscal disaster of 2008-09. While the record high DOW is an optimistic sign, American household income is still lower than it was before the financial crisis. Such trends are drawing more attention to the issue of income and wealth disparity in the United States and abroad.

The story that these statistics tell is one of a huge gap, indicating a disparity in income, wealth, and expectations regarding the economy. Wealth disparity between the very rich and the working poor has grown larger. While there are other positive signs for the US economy, such as a decline in the average amount of debt, the gap in income may lead to a government structure that caters more to the wealthiest Americans instead of to the interest of Americans in all income groups.

The GINI coefficient is a measure of income inequality in a society; it works on a scale where the closer the coefficient is to 0, the more equal a society. The highest, most unequal number the scale reaches to is 100. The most recent figures show the United States with a GINI coefficient of 45. At the same time, countries like Swaziland and Zambia have GINI coefficients over 50, signifying an even less balanced distribution of wealth. The GINI coefficient is often closely related to the amount of people living in poverty in a given country, and high GINI coefficients often reflect a situation in which very few are extraordinarily wealthy while millions live in poverty.

Understanding our current situation may help us understand the unbelievable difference in income around the developing world and help us shrink those gaps by supporting efforts to strengthen industry and provide more opportunities for those at the bottom of the economic ladder to escape poverty.

– Kevin Sullivan
Sources: The Atlantic, CIA World Factbook